Monetary policy however cannot on its own improve the potential growth rate of the economy or reduce fiscal risks. These should be addressed by implementing prudent macroeconomic policies and structural reforms. #MPCStatement #MayMPC pic.twitter.com/9mGWMiDkUQ
— SA Reserve Bank (@SAReserveBank) May 21, 2020
“Every little rand and cent will help workers. This is going to help, it will mean a few hundred rands extra back into each workers pocket each month. We are hopeful that the Reserve Bank will give more repo rate cuts throughout the rest of the year.”
Parks adds: “Inflation has fallen quite significantly, it is projected now to go to about 2.8%, but we think now the commercial banks also have to play their role. They can cut their interest rates much more than the repo has been cut. Often the interest rates that the commercial banks and other financial lenders charge is excessive. More money in people’s pockets means they can spend more. It will also help companies to survive and to avoid retrenching workers. So this is the kind of interventions we need.”
Economists welcome repo rate cut
Meanwhile, Economists have welcomed the repo rate cut.
The move will bring further relief to South Africa’s battered economy, most of which is still under lockdown.
Director at Merchant Afrika, Lavan Gopaul, says the markets were anticipating a further reduction of the interest rate.
“While the markets were anticipating a further reduction in the interest rate, they had expected a much larger increase today (Thursday). You saw the markets build on this price and keeping the rand trading at a much weaker level. Whilst the market digested that we might see a much smaller cut, you saw an immediate dash for currency and there was demand for the rand, dipping below that R18 to a dollar level. So all in all, we are seeing a stronger currency because the interest rate didn’t drop as much as the markets expected.”
In the video below, Lavan Gopaul reacts to the repo rate cut: